No impact on inflation even if GST rate is 18-20%: Arun Jaitley

Finance Ministry today said that all efforts are being made to roll out GST from April 1, 2017, and allayed fears that it will have an impact on inflation even if the rate is kept at 20 per cent.

“All efforts will be made with cooperation of every one to meet the deadline of April 1, 2017... There is no such (price rise) threat. States and the Centre will take a call on rates that will take into account all issues, including the concern related to inflation,” Finance Secretary Ashok Lavasa told reporters.

In the biggest tax reform since Independence, the Rajya Sabha last night approved the Goods and Services Tax (GST) bill to replace a raft of different state and local taxes with a single unified value added tax system to turn the country into world’s biggest single market.

Chief Economic Advisor Arvind Subramanian said that even if the GST rate is 18-20 per cent, there would be no average impact on inflation.

“Our calculation suggests that if you allow 18-20 per cent (GST rate), there is no inflation impact on average. Of course, a few commodity here and a few commodity there, the incidence will go up. But on average, especially for the poorest, I will be very surprised if there is any impact on inflation at all,” he told CNBCTV18.

The Constitutional Amendment Bill did not have the GST rate and the GST Council, which will have representation from both the Centre and states, will now work out a rate.

The subsequent legislations Central GST (CGST) and Integrated GST (IGST) -- which are likely to come up for discussions in the next Winter session of Parliament—would mention the GST rate.

A panel headed by Subramanian had last year suggested 17-18 per cent ‘standard’ rate for bulk of goods and services while recommending 12 per cent for ‘low rate goods’ and 40 per cent for demerit goods like luxury car, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 per cent.

The Finance Secretary said the GST regime would bring more compliance, which would mean more transactions falling into the tax net.

“It will bring more efficiency and better prospects for growth,” Lavasa said.

Economic Affairs Secretary Shaktikanta Das in a tweet said GST will unleash a lot of energy into the Indian economy and push the GDP growth to over 8 per cent in medium term.

“External factors continue to be of concern. Policy focus will be to strengthen our firewalls against such vulnerabilities,” Das said.